Costco Now Takes Visa – And a New Costco Card from Citi

Costco Now Takes Visa – And a New Costco Card from Citi

The big news this week is that Costco began its switchover to accepting all Visa debit and credit cards. For a long time now, Costco only accepted American Express credit cards and Visa and Mastercard debit cards.

Of course, many people had the AMEX Costco card–in fact, it was a huge percentage of their revenue and credit card portfolio.

To make a long story short, Citi outbid AMEX for the Costco account (and paid steeply). Not only that, they upped the card by adding 1% more cash bag than AMEX did.

Here’s the new earning structure:

The best part? It earns high cash back worldwide.

The earning structure is as follows:

4% cash back on eligible gas, including Costco

3% cash back on restaurant and eligible travel purchases

2% cash back on other purchases from Costco and Costco.com

1% cash back on all other purchases

What’s most intriguing about this is that Citi is allowing you to earn cash back on these categories… WORLDWIDE. That’s pretty huge. AMEX, for example, is notorious for only having their bonus categories work in the U.S. (on their proprietary cards, not their co-branded). So if you’re traveling abroad and swipe your Premier Rewards Gold at a supermarket, you won’t earn 3X Membership Rewards.

What’s the Catch?

There always is one, isn’t there?

For me, it would be the Costco Cash Rewards structure.

As opposed to a regular cash back card where you can receive the cash back in statement credits or a check, you “Receive a [cash back] coupon annually in your February billing statement, then redeem it anytime before December 31 [of the same year]. Just visit a Costco warehouse to exchange your coupon for merchandise or cash.”

Let’s break that down:

“Receive a [cash back] coupon annually…” — Practically, this probably means if you apply for the card today and start earning cash back, you’ll receive your coupon of cash back in February 2017, which expires Decemeber 31, 2017. This gives you almost 11 months to use the “coupon”.

Most cash back dollars don’t expire.

“Just visit a Costco warehouse…” – You need to go to a physical location to use that coupon for merchandise or cash.

That doesn’t make much sense to me, but I guess someone who spends a lot of money at Costco and Costco Gas could make some worthwhile profit off of this.

Why do I think Citi did this? Well, most people like to shop online and if you have to go into the store to redeem it and them come back to shop with it, chances are you’re going to forget or it’ll just expire and never be redeemed.

The only upside is that those who religiously shop at Costco won’t forget because they’d want to use it at Costco anyways to offset their expenditures. That’s probably true.

And the earning structure… You can do better.

If you’re looking for cold hard cash (back), you can do much better for some of the categories.

Let’s say that this card hard a straightforward cash back redemption like other products then it would outclass most cards in Gas, Travel and Restaurants. BUT, there is a convoluted earning structure for all categories.

The main sell of the card is earning Cash Back at big warehouse stores, like Costco (duh!). But you only earn 2X, all the time.

Guess what?

From now until the end of the calendar year, those with the Chase Freedom cards will earn 5X cash back per dollar at Costco and other warehouse stores like BJ’s and Sam’s Club.

Yes, there is a limit, but for your first $1,500 in Costco spending (if you can/will spend that much until December 31, 2016) you’d earn $75.00 cash back (or 7,500 Ultimate Rewards points if you prefer), as opposed to the $30 cash back you’d earn on $1,500 worth of purchases at Costco.

Now once that promotion ends (though it usually comes back during the third quarter, especially now that Costco takes Visa, which the Freedom is), you are better off using your Costco Visa–unless you hate the earning structure and redemption policy. In that case, go with the Citi double cash which will earn you 2X cash back per dollar.

A few other things…

This card does not carry foreign transaction fees, which is unique for some cash back cards. If the Costco cash redemption option works for you, this could be a solid cash back option when traveling abroad (for dining and travel).

You have to be an existing Costco member to apply for the card–the application will ask you for your membership number–that is the annual fee for the card, too.

The 4% cash back on gas purchases (including Costco gas) is limited to the first $7,000 per year.